The Capital Structure Choice and the Consumption Tax
The consumption tax affects the consumer, but also affects the wealth of the producer because of the tax incidence effect. It affects cash flows from corporate investment, bears influence on capital budgeting choices on investment timing and financing and the respective agency conflicts between shareholders and creditors. In the context of irreversible investment, our model shows that consumption taxation delays investment and precipitates default. Furthermore, we find that the consumption tax has a negative effect on the agency costs of debt, the yield spreads and the optimal leverage ratio. Finally, the model also produces implications for governmental tax policy.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrea Gamba & Leon Gordon & Carmen Aranda Leon, 2008.
"Investment Under Uncertainty, Debt and Taxes,"
wpn08-03, Warwick Business School, Finance Group.
- Wu, Liansheng & Yue, Heng, 2009. "Corporate tax, capital structure, and the accessibility of bank loans: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 30-38, January.
- Mauer, David C. & Sarkar, Sudipto, 2005. "Real options, agency conflicts, and optimal capital structure," Journal of Banking & Finance, Elsevier, vol. 29(6), pages 1405-1428, June.
- Erwan Morellec & Norman Schürhoff, 2010. "Dynamic Investment and Financing under Personal Taxation," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 101-146, January.
- Hayne E. Leland., 1994.
"Corporate Debt Value, Bond Covenants, and Optimal Capital Structure,"
Research Program in Finance Working Papers
RPF-233, University of California at Berkeley.
- Leland, Hayne E, 1994. " Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-52, September.
- Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
- Robert Stretcher & Steve Johnson, 2011. "Capital structure: professional management guidance," Managerial Finance, Emerald Group Publishing, vol. 37(8), pages 788-804, August.
- Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
- Childs, Paul D. & Mauer, David C. & Ott, Steven H., 2005. "Interactions of corporate financing and investment decisions: The effects of agency conflicts," Journal of Financial Economics, Elsevier, vol. 76(3), pages 667-690, June.
- Sarkar, Sudipto, 2008. "Can tax convexity be ignored in corporate financing decisions?," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1310-1321, July.
- Mauer, David C & Triantis, Alexander J, 1994. " Interactions of Corporate Financing and Investment Decisions: A Dynamic Framework," Journal of Finance, American Finance Association, vol. 49(4), pages 1253-77, September.
- Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
When requesting a correction, please mention this item's handle: RePEc:ers:journl:v:xv:y:2012:i:1:p:3-22. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eleni Giannakopoulou)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.